Exchange-traded funds, or ETFs for short, have exploded in the three decades since they were hrst
introduced, but do they belong in your retirement portfolio?
The SPDR S&P 500 ETF SPY, -O.27%, the hrst exchange-traded fund, was introduced in January 19 93
and has since become an extremely popular investment choice. The SPDR S&P 500 ETF had $6.5
million in assets at its birth, according to State Street Global Advisors. It now has almost $357 billion.
There are more than 3,000 ETFs with almost $6 trillion in assets in the United States, according to the
New York Stock Exchange. The average daily value of ETF transactions is $149 billion across 2.3 billion
daily trades.
Hand-picking investments for retirement portfolios isn’t for everyone. In order to do so, investors
should research the choices available in their plans, and understand the best mix of stocks, bonds and
other investment options that suit their needs and goals. For example, a younger investor just starting
her career may prefer a portfolio primarily in equities, while that same person may want to slowly shift
toward conservative assets as she gets older and closer to retirement.
That’s why target-date funds are a useful tool for retirement savers. These funds are tied to an
estimated retirement year, and automatically change asset allocation to become conservative over
time. Target-date funds may be too generic for some investors, but can work well for an investor stil
learning
But for those who want to be more active in their retirement investments, ETFs could make sense.
They are easily accessible and often come with lower fees. They do trade throughout the day, unlike a
mutual fund which trades at closing, but they’re similar in that they’re “funds of funds.” There are
thousands of options, including funds that are linked to indexes, beliefs (such as religions, antigun
policies or ESG), and bonds.
ETFs can be a novice-friendly investment choice – and they may even be target-date funds.
There are hve key factors to consider, said Christopher Lyman, a certihed hnancial planner at Allied
Financial Advisors: Performance, and how it compares to other investments in the same investment
sector; process, which is the fund’s investment strategy; people, specihcally the ones managing the
fund; price, and how it compares to other choices in the same category; and portfolio, which would be
the companies within that fund.